MF - PUBLIC SESSION

Mutual Fund : Mutual Fund

Activity - 1 : Activity - 1 Name any mutual fund, you know ? Name any scheme of mutual fund, you know ? Have you ever invested in mutual funds ? Why you invested in mutual funds ?

Mutual Fund : Mutual Fund Mutual Fund is an investment vehicle for pooling the resources of investors by issuing units and investing funds in securities in accordance with stated investment objectives as per offer document.

Mutual Fund : Mutual Fund A Mutual Fund is a trust registered with the Securities and Exchange Board of India (SEBI), which pools up the money from individual / corporate investors and invests the same on behalf of the investors /unit holders, in equity shares, Government securities, Bonds, Call money markets etc., and distributes the profits. The income earned through these investments and the capital appreciation realised are shared by its unit holders in proportion to the number of units owned by them. This pooled income is professionally managed on behalf of the unit-holders, and each investor holds a proportion of the portfolio i.e. entitled not only to profits when the securities are sold, but also subject to any losses in value as well

Mutual Fund : Mutual Fund Inv-A Inv-B Inv-C Inv-D Inv-E Inv-F Inv-G Mutual Fund Equity fund Gold Fund Debt Fund

The MF Cycle : The MF Cycle

History of Mutual Funds : History of Mutual Funds Mutual Funds started first in USA History in India: 1964-1987 – Growth of Unit Trust of India 1987-1993 – Entry of Public Sector Funds 1993-1996 – Emergence of Private Funds 1996-1999 – Growth and SEBI Regulation

MF Structure in India : MF Structure in India A mutual fund has a 3-tier structure Sponsor Trustee AMC

Intermediaries in Mutual Fund : Intermediaries in Mutual Fund Sponsor Trustee AMC Trust R&T Agent Custodian Distributor

Offer DocumentMost important document for a prospective investor : Offer DocumentMost important document for a prospective investor Principle of ‘BUYER BEWARE’ applies Investor has no recourse for not having read the OD/KIM. Key Information Memorandum Abridged OD KIM is mandatory with every application form.

Who Can Invest : Who Can Invest Who can invest in mutual funds Resident individuals Indian companies Indian trusts / Charitable institutions Banks Non-banking finance companies Insurance companies Provident funds Non-resident Indians (Repatriable and non- repatriable) Foreign Institutional Investors Foreign citizens / entities are not allowed to invest in mutual funds in India excepting FIIs registered with SEBI

Requirement for Investment : Requirement for Investment Fill an application form Provide PAN Fulfill KYC norms Bank Account details Make Payment

Activity 2 : Activity 2 Fill an application form

Types of Funds : Types of Funds Open-ended (OEF) & Close-ended (CEF) Load & No-Load

Types of Funds Open End Fund & Close End Fund : Types of Funds Open End Fund & Close End Fund Open End Funds Ongoing sale & purchase by the fund NAV to be declared everyday Close End Fund Sale of units only during NFO, no subscription after closure of NFO Redemption in 2 ways Exit window – periodically repurchase of units by the fund Listing – secondary market trading of units, like stocks Weekly NAV every Wednesday

Types of Funds : Types of Funds Load funds v/s no load funds Load Funds : Cover expenses of advertising / distribution Entry load: Purchase price greater than NAV Exit Load: Redemption price lesser than NAV No load Funds No load at any point, entry / exit NAV calculated after accounting for all expenses

Classification based on investment objective : Classification based on investment objective Growth / Equity oriented scheme a. Diversified Equity Fund b. Index Fund c. Sector funds Hybrid Schemes a. Balanced Fund b. Monthly Income Plan Income/ Debt oriented scheme a. Money Market Fund b. Gilt Fund c. Fixed Maturity Plan Primary objective is capital appreciation Primary objective is capital appreciation + income generation Primary objective is income generation

Risk-Return Hierarchy : Risk-Return Hierarchy Liquid funds ST debt funds Gilt funds Debt Funds Balanced funds Risk Index funds Return Equity funds Sectoral funds

Net Asset Value : Net Asset Value Represents the value of each unit of the fund Calculated as follows NAV = Net assets of the scheme Number of outstanding units Where net assets of the scheme are : Market value of investments + Receivables + Other accrued income + Other assets - Accrued expenses - Other payables - Other liabilities

Pricing of units : Pricing of units Sale and repurchase price are NAV-based SALE PRICE = NAV + Entry Load REPURCHASE PRICE = NAV – Exit Load

Activity 3 : Activity 3 NAV is 25.50 Entry Load = 2.00% Exit Load = 1.00% What is the sale price of units What is the repurchase price of units

Investment Options : Investment Options Growth option Dividend-payout option Dividend Re-investment option Dividend Transfer Plan Bonus Option

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Investment Strategy : Investment Strategy Systematic Investment Plan Systematic Withdrawal Plan Systematic Transfer Plan

Investment Plans and Services : Investment Plans and Services Systematic investment plan Periodic investments at regular intervals Cultivates investment habit Avoids timing the market Avoids greed and fear Participation in all market movements

Investment Plans and Services : Investment Plans and Services Systematic withdrawal plan Withdrawal at regular intervals Provides regular income Amount withdrawn is treated as redemption Different from monthly income plan Redemption of principal amount, not only gains as in monthly income plans Redemptions taxed as capital gains

Investment Plans and Services : Investment Plans and Services Systematic transfer plans Periodic transfer of investments from one scheme to another Trigger may be related to date or value Efficient manner of booking profits and maintaining allocation of debt and equity Transfer out is treated as redemption and transfer in is treated as application Tax as applicable on application and redemption

Unit holder rights : Unit holder rights Rights of unit holders Right of proportionate beneficial ownership of scheme’s assets Right to timely service Right to information Right to approve changes in fundamental attributes Right to wind up a scheme Right to terminate AMC services Limitation of Unit holders right Cannot sue the mutual fund

Fees & Expenses : Fees & Expenses Initial Issues Expenses Recurring Expenses Investment Management Fee Entry & Exit Load.

MF Taxation Summary : MF Taxation Summary

Investment Return Calculation : Investment Return Calculation Sources of return Dividend Change in NAV

Benchmarks : Benchmarks Relative returns are important than absolute returns for mutual funds Comparable passive portfolio is used as benchmark Usually a market index is used Compare both risk and return, over the same period for the fund and the benchmark.

Advantages : Advantages Affordability Professional Management Diversification Flexibility in choice Low costs Transparency Liquidity Tax Benefits No control over costs No tailor made portfolio delegating investment decisions to fund managers and have no say/control on their decisions Disadvantages

Risk Management through mutual funds Financial theory states that an investor can reduce his total risk by holding a portfolio of assets instead of only one asset. This is because by holding all your money in just one asset, the entire fortune of your portfolio depends on this one asset. By creating a portfolio of a variety of assets, this risk is substantially reduced.Can mutual funds be viewed as risk-free investments?No. Mutual fund investments are not totally risk free. In fact, investing in mutual funds contains the same risk as investing in the markets, the only difference being that due to professional management of funds the controllable risks are substantially reduced.What are the risks involved in investing in mutual funds?A very important risk involved in mutual fund investments is the market risk. When the markets  experience a  downturn, most funds will  reflect this decline in their NAVs. However,the company specific risks are largely eliminated due to professional fund management. : Risk Management through mutual funds Financial theory states that an investor can reduce his total risk by holding a portfolio of assets instead of only one asset. This is because by holding all your money in just one asset, the entire fortune of your portfolio depends on this one asset. By creating a portfolio of a variety of assets, this risk is substantially reduced.Can mutual funds be viewed as risk-free investments?No. Mutual fund investments are not totally risk free. In fact, investing in mutual funds contains the same risk as investing in the markets, the only difference being that due to professional management of funds the controllable risks are substantially reduced.What are the risks involved in investing in mutual funds?A very important risk involved in mutual fund investments is the market risk. When the markets  experience a  downturn, most funds will  reflect this decline in their NAVs. However,the company specific risks are largely eliminated due to professional fund management.

Thank You : Thank You